Airline passenger needs are evolving, and today’s customers ask for more than just the best price. Christopher Elliott from Elliott Advocacy, a nonprofit consumer advocacy organization, found in a survey that while 77 percent of airline passengers consider fare first, 48 percent also consider schedules, 47 percent consider connections (direct versus indirect flights), and 36 percent look at whether they must pay additional fees for luggage and other services.
According to Skift and Sabre, “airlines and travel agencies are entering a new world of personalized retailing” as they strive to differentiate their offers.” And strategically connecting the dots across various functions is becoming increasingly important in order to successfully achieve that differentiation. From the schedule and route plan to how ancillaries and upgrades are bundled, every element of an offer can ultimately be used to personalize an experience and differentiate an airline.
Compounding this need is how airline customers are looking at the conveniences they want in the context of each trip. On a leisure trip, a customer might have the luxury of time and therefore be willing to take an indirect flight in order to save money. But the same customer might prioritize a direct flight despite the added cost when on a business trip. As a result, airlines must create offers that are relevant to varying customer segments. They must find the sweet spot that gives customers what they want, when they want it, for a price they are willing to pay while still being profitable. This starts with dynamic pricing – being able to continuously optimize offer prices based on market realities. Dynamic pricing is a component of dynamic offer management which allows airlines to offer personalized bundles across all channels.
To successfully distribute dynamic offers, Sabre believes that offer management must expand beyond an airline’s traditional sales and distribution teams. Airlines should not only be able to create dynamic offers, but also fulfill them in a way that continues to meet customers’ needs and wants. Intelligent decision support integrated with inventory and shopping data will be imperative to continually deliver, learn and improve the offer. As the industry begins to use dynamic offers as a way to further differentiate and personalize their brand, being able to deliver personalized bundles across all channels will be imperative.
Through continued partnership with Sabre, Croatian Airlines is balancing between giving customers the offer they want and a price point that will maximize the airline’s profitability. “We are laser-focused on delivering a premium passenger experience and that is much easier if our bottom line is healthy,” said Jasmin Bajić, president and CEO of the airline in a press release. “It is essential that we protect our revenue by setting the right price and maximizing the number of seats sold. Sabre’s state-of-the-art revenue optimization solutions are key to making this happen by providing us with actionable insights based on customer demand, competitive landscape, and a myriad of other factors.”
The revenue optimization solutions Bajić is referring to are part of the Sabre Commercial Platform. The platform enriches an airline’s own data with additional information from aggregated booking and marketplace data to better understand demand, an offer’s competitive position in the marketplace, and a customer’s willingness to pay a particular price for an offer. Enabled by a process of continuous learning, the system is constantly evolving offers and optimizing prices in real-time. This approach allows airlines to move beyond traditional static pricing and revenue management practices to deliver dynamic pricing and dynamic offer management. For example, as offers are being pushed out to customers through various channels, the offers can be personalized and priced dynamically to perform optimally on each channel. This gives airlines constant control over the product they want to deliver.
“As airlines move past pricing, the industry is looking for ways to create and sell intelligent and dynamic offers. Such offer creation requires decision support driven by insights from diverse data sets and integrated platforms that enable end-to-end offer management,” said Mike Reyes, senior director for offer management at Sabre. “Every function that an airline undertakes, from creating flight schedules to ultimately displaying the offers, provide valuable insights into what can be offered and how it should be priced for maximum earnings in response to consumer demand.”
Even something as simple as offering free Wi-Fi on the flight can help airlines with their pricing and forecasting decisions. “If you consider a Monday take-off and Thursday return schedule between Dallas and Atlanta, it’s safe to assume that a majority of these passengers will be travelling for business,” said Reyes. “The airline can then bundle seats with Wi-Fi to maximize profits without crossing the threshold of what each customer would be willing to pay for it.”
As airlines create these intelligent offers, seamless, real-time handoffs of data and insights between planning, revenue, inventory, and shopping systems are key to maximizing revenues. “Therefore, we have set up our Commercial Platform to allow flexible connections across systems so that airlines can create the best-case scenarios for themselves and their customers,” said Reyes. “For example, an airline can set up specific rules that take shopping demand and available inventory into account to close and open price points. This would not be possible if the revenue management system, inventory systems, and the distribution systems weren’t integrated. Further, this level of integration allows new platforms and solutions to connect with their existing technology landscape as well, minimizing disruption to everyday operations.”
Sabre is actively partnering with airlines to develop proof of concepts utilizing the power of decision support to provide real-time market information. It is enabling airlines to optimize seat prices based on market information through its revenue optimization suite. “We want to build out capabilities that empower airlines to dynamically price personalized bundles across all channels,” said Reyes. “There is significant revenue potential for airlines who can master dynamic offer management. However, getting there will not happen overnight.” Until then, airlines will have to operate in a hybrid world that straddles legacy systems and modern technologies as changes in processes, systems and team structures are made.
According to Passenger Origin-Destination Simulator at Massachusetts Institute of Technology, airlines delivering dynamic offers can expect a 2.7 percent uplift in revenue. Therefore, airlines need intelligent technology solutions that look at the market as a whole and offer contextually relevant recommendations when creating offers. “As airlines continue to shift away from competing on the lowest price and begin competing on the best value they can offer, dynamic pricing and offer management will be key to increasing revenue and driving profits,” said Reyes.